Dysfunction in House Threatens Property Tax Reform

February 25, 2008

Indiana Writers Group column for Feb. 27 and thereafter (720 words) (Editors: This column will be updated mid week after the full House votes on the resolution.)

by Andrea Neal

If politics is “the art of the possible,” as Otto von Bismarck remarked, property tax reform may be dead for 2008. The first serious sign of trouble came last week when House Democrats switched a property tax cap months in the making with a plan that had not previously been aired, studied, or evaluated by fiscal experts.

On a party-line vote Feb. 20, the Ways and Means Committee removed from a Senate joint resolution the language that would amend the constitution to cap property taxes at 1 percent of a home’s assessed value. In its place they inserted a cap to equal 1 percent of combined household income. Next, the committee excluded from the cap existing debt service, which is almost a third of local tax burden. The vote was perplexing considering the same representatives had voted less than a month before for the language they stripped out.

Especially odd was the role of Ways and Means Chairman Bill Crawford, D-Indianapolis, who held hearings in December on Gov. Mitch Daniels’ tax proposal, including the 1 percent cap, and who agreed to sponsor the governor’s proposal in the Democratic-controlled House.

His thinking back then was that such a complex issue needed time to percolate in the marketplace of public opinion. In a news release issued Nov. 20, Crawford said, “This is the most important legislation that the Indiana General Assembly will consider during the 2008 session. It is imperative that we give the people of Indiana every chance to examine the proposal in detail, and have ample opportunities to make their feelings known about it.”

Yet Crawford’s replacement plan was thrown together so quickly that the Legislative Services Agency hadn’t prepared a routine fiscal impact statement for it. No figures were available to show how it would affect revenues. Daniels called the idea “half-baked.” House Minority Leader Brian Bosma, R-Indianapolis, suggested it had been drafted on the back of a cocktail napkin.

What’s changed? Why has the “tax reform at any cost” rhetoric of 2007 been replaced by unexpected amendments and Republican-Senate-against-Democratic-House, politics as usual.

Crawford’s explanation was that he wanted to help folks who would be most hard hit by an increase in state sales tax — from 6 to 7 percent — that Daniels has proposed to make up for lost property tax revenues. Tying the tax cap to income rather than assessed value, he said, would more closely reflect one’s ability to pay.

As for exempting debt service from the cap, Crawford said he wanted to protect local government bodies, especially schools, from having to make deep and painful budget cuts that may be required once a cap takes effect. The school district Crawford represents, Indianapolis Public Schools (IPS), has argued that a 1 percent tax cap will cost it $15 million and penalize it and other “poor, mostly urban” school districts without taking anything away from affluent ones.

This is not the argument Democrats or schools ought to make. In IPS, as in other inner-city districts, the sad reality is that property taxes had gotten got so high that homeowners were selling their houses and moving to townships where taxes are less. When tax bills hit the mail last summer, Democrats and Republicans were equally affected and both took to the streets. The "For Sale" signs that sprouted up were just the beginning of a downward spiral that in the long run could only hurt the IPS tax base more.

A permanent and constitutional cap on property taxes is one thing that can actually keep middle and upper class homeowners in urban areas. If IPS is right, that urban districts will suffer more than affluent ones, the legislature can address that through the school funding formula, not by stopping a much-needed constitutional amendment.

Even if the 2008 Legislature acts, Hoosiers are still a long way from having a guaranteed cap. The 2009 or 2010 General Assembly would have to pass the pertinent legislation again before it could go to voters in a referendum.

That’s why the 2008 Legislature can’t punt until after the Nov. 4 election. Taxpayers need to know now what their bills are going to look like next year and into the future. Lawmakers have until March 14 to do something.

Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.

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